The two exchanges would suspend the stocks 20 trading days after they were found violating the rules and delist them 12 months after suspension if the public float was still below the minimum requirement, the exchanges said.

The rules, which complement listing rules that do not specify a minimum public float, would help raise the competitiveness of the domestic stock market, said Ronald Wan Ten-lap, the head of investment banking at SBI E2-Capital.

Since May last year, the securities regulator has urged firms to convert non-tradable state-owned shares to tradable ones to increase market liquidity and add value to shares. Almost 90 per cent of listed companies have completed the reform or have the change under way.

The new rules also would help the mainland securities market become a strong competitor of the Hong Kong market, Mr Wan said.

The yuan-denominated market would become more attractive, especially to small and medium-sized companies, when the market was better regulated, he said.

Hong Kong has set a minimum public float of 25 per cent for most companies and 15 per cent if an issuer's market capitalisation is more than HK$10 billion.

The mainland exchanges also said the public float excluded investors with more than a 10 per cent stake and company managements.

The new rules would curb the extent to which company managements could buy stock and would help reduce insider transactions, said Professor Guo Tianyong at Central University of Finance and Economics. They would also increase opportunities for mergers and acquisitions through the open market.

The impact would be limited as the regulator already required listing-bound firms to sell at least 25 per cent of their shares to the public, said Bridge Wu of Changjiang BNP Peregrine Securities.

Firmer grip

Minimum floats of 10 per cent and 25 per cent for listed firms

New rules make China markets stronger rivals of Hong Kong

Company managements face curbs on stock purchases